Investing In Gold: To Invest or Not to Invest is the golden question.
We Indians love gold. In fact, we love it so much that our country ranks second in the globe in gold consumption. Buying gold has been a significant investment strategy of Indians for thousands of years. Gold is auspicious and symbol of social status on top of being a satisfactory long-term wealth creator.
In recent years, the middle-class Indian is leaning towards gold buying than Fixed Deposits as a means of wealth creation as the FD interest rates have substantially gone down. However, one should bear in mind that gold is not suitable for short-term gains as it is a long-term investment option.
Four Reasons Why You Should Invest in Gold
Gold is one of the solid investment options you can opt for; it has stood the test of time. Physical gold is a currency that survives when paper currencies do not.
#1 It is practically risk-free
In our country, gold is hardly ever affected by deflation. The real risk involved in gold buying is that it comes at the cost of investing in other opportunities that can give higher returns. Fall in gold price never lasts, and always make a strong comeback.
#2 It is a hedge against inflation
Gold investments come handy when the markets are falling and when the inflation is quite high. Intensifying inflation will push up the prices higher. If you examine history, you can find that in scenarios of high inflation, gold has performed significantly better than equities or other investment options.
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#3 It does not cost a fortune
Investing in gold is much easier than investing in real estate or equities. You don’t need a lot to start an investment.
#4 It offers high liquidity
Physical gold can be converted into money anywhere in the world. You can sell it at your local jewelry shop and generate cash immediately. Conversion of stocks and mutual funds into cash is possible, but it takes a few days to get the amount credited in your bank account.
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And Three Reasons Why You Shouldn’t
#1 It does not generate any returns
Unlike stocks and bonds, gold buying does not offer dividends or interests. The only way to make profit from gold is by selling it off.
#2 It requires safety against theft
Gold is a very valuable asset and safe storage is a matter of concern. Many people opt to keep their gold in bank lockers, paying an annual maintenance fee.
#3 You need to pay tax
When you buy gold, you will be charged GST on the same. Additionally, the sale of gold attracts capital gain tax under Income Tax Act of India. If you sell your gold within three years of acquisition, the profit or gains earned is added to your regular income which is taxed. If gold is sold after 3 years of acquisition, the long-term capital gain earned from the sale of gold assets carries a tax rate of 20% along with applicable surcharge and education cess.
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Tips for Investing In Gold
#1 Buy gold coins or gold bars
When you purchase gold jewelry, you will be paying making charges which sometimes come up to 35%. When you sell the same piece of jewelry, you will only get the price of the gold. So, if you are buying gold for long-term wealth creation then it is better to opt for gold bars or gold coins.
#2 Go for Gold ETFs (Exchange Traded Funds)
Those who invest in Gold ETFs buy a proportionate value of gold but not in the physical form. Gold ETFs involve asset management and brokerage fee, but they remove the burden of trading gold in the physical form. This option is ideal for investors who have the required time and skill set to trade.
#3 Invest in Gold Funds
Gold Funds involve making an investment in gold mining companies. A Demat account is not necessary for investing via Gold Funds. Also, the changes in gold prices do not affect Gold funds directly. This investment option is best suited for investors who expect high returns taking calculated risks
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There are both pros and cons associated with investing in gold. Gold investment is the best option for those who are primarily looking at safety and liquidity. It may not be a great option for people who are seeking a regular source of income through high returns.
It is preferable not to keep gold as the only choice of investment. Investors should be well aware of the fact that an equivalent amount of money deployed in a business or any other productive economic activity may generate actual wealth and may grow larger in a very fundamental way.